What to Do About Wilkinsburg?

A recent news article focused on the Wilkinsburg School District in the eastern part of Allegheny County and its confluence of problems over the past two decades. The article quotes many different people-students, teachers, administrators, school board members who all offer up opinions about why the District is in the condition it is in. It also touched upon the mid-1990s proposal for Turner Elementary, a proposal which the Allegheny Institute wrote about in 1996 and now provides a deep and detailed history of those efforts. The article did not mention that the District endured two strikes in back to back years (1998-99 and 1999-00).

Just a short time ago and before the publication of the recent article a state senator held a community forum and called the situation "unsustainable".

Is it? Take a look at recent numbers. The per-pupil expenditure in Wilkinsburg was $20,569 in the 2010-11 school year, a 67% increase from where it stood in 2002-03. The per-pupil amount was fourth highest in the County. Enrollment fell by more than 20% from 2002-03. The District hiked millage rates in 2005 and 2012 and stood at 36.6 mills last year, the highest in the County. The idea of merging Wilkinsburg into Pittsburgh Public Schools has been raised (the two have merged fire departments and the City handles residential trash collection for the Borough) but there has not been much enthusiasm for the idea. In fact, over the same time frame Pittsburgh saw a larger drop in enrollment in percentage terms (24% to Wilkinsburg’s 21%) and it almost had the same increase in per-pupil spending (64% to 67%).

Is State Ready to Shutter District?

A handful of years since the voluntary merger of two Beaver County school districts lowered Pennsylvania’s school district count from 501 to 500, the state appears poised to use its power to close down the Duquesne School District and bring the count to 499.

All that is left of the District is an elementary school-middle and high school students have been attending neighboring districts. We documented the academic and financial condition of the District in late 2011 and showed that proficiency was not getting better in upper grades and had fallen in lower grades. Spending per student approached $20,000, most of it coming from Federal and state sources. That piece was predicated on work done by the Institute in 2003.

Last year the District came under a new law, Act 141, which functions as a way to resuscitate distressed schools, much like Act 47. The recovery officer for the District (Duquesne operated under a control board for much of its recent history) made it known that the economics of keeping an elementary school open won’t work, nor would a charter school, so it looks like either a voluntary or mandatory transfer of elementary students.

At the conclusion of that 2011 Brief we offered the following: "one would hope the board, the administration, and the staff would care enough about their obligation to the kids and taxpayers to support drastic remedial steps, including closing the school". Here we are now, though the push to close the school is not coming from any of those parties

Who is Severely Distressed?

Act 44 of 2009 addressed public sector pensions at the local level in Pennsylvania and came up with a typology of distress based on the funding ratio (assets/liabilities) of the plan to determine if there was no distress (90% or above), minimal distress (70 to 89%), moderate distress (50 to 69%), and severe distress (49% or lower). Pittsburgh was at the severe distress level for some time until the 2010 "revenue infusion" plan moved it, by PERC’s measurement, to moderate distress.

The latest PERC status report looks at this typology. In 2010, with 1,439 municipalities scored, 27 (less than 2%) had a designation of severe distress. In 2012, with 1,449 municipalities scored, 26 (1.8%) had a designation of severe distress. One can see the impact of plans in Pittsburgh, as well as Philadelphia, moving out of this level of distress: in 2010, the class of "cities" reported 32,524 active members in the severe distress level, and by 2012 "cities" had 782 active members in the severe distress group.

PERC notes that many of the severely distressed plans are newer plans (less than ten years old) and gave past service credit to employees, raising the liability of the plan. Makes one wonder how many plans are severely distressed because of mismanagement or underfunding and if officials view the local pension system as one in need of inclusion in statewide reform (like the systems for state workers or school teachers) or if there are enough plans in good shape that should be left alone.

Pittsburgh: Exit Act 47, Enter Act 141?

As City officials prepare to make their case to the state that they have progressed to the point where they can shed Act 47 distressed status, just up the road at Pittsburgh Public Schools’ headquarters they are asking whether the District is in such financially bad shape that it will be "bankrupt" in three years. One board member asked "By 2015, are we broke, out of business?" to which a consultant replied, "correct".

That’s a bit strong. Districts cannot go bankrupt in Pennsylvania as they are not permitted to file by the state (only municipalities can). But there are new provisions in state law under Act 141 that prescribe how the state, through the Department of Education, is to deal with school districts facing financial distress. We wrote about the legislation before it was singed into law this past June.

Act 141 applies to all districts in the state except for Philadelphia. A district can fall into either "moderate" or "severe" distress and for a district deemed as such (the law says there cannot be more than nine at one time) the state will appoint a Chief Recovery Officer who will write a recovery plan. The plan has to be approved by the district’s board, and there are procedures for what happens if approval is delayed. There are a variety of tools for getting a district back to sound financial footing from reopening of budgets, examining contracts, exploring charter schools, and other options. Exit from financial recovery depends on the progress of the district and the determination of the Secretary.

Is Pittsburgh headed here? Who knows? There might be other options on the table, but as the Superintendent noted "We believe there’s a way forward. It may not be something we thought of before. It may not be something that comes to the mind readily. It may not be something that’s easy to arrive at."

An “Act 47” for Schools

Legislation has passed both houses of the General Assembly that would put in place financial recovery and receivership provisions for the state’s 500 school districts, though it is a safe bet that, like the fiscal distress provisions that could apply to all of the state’s 2,000-plus municipalities, not all will ever encounter any sort of fiscal oversight or guidance.

A side-by-side comparison of Act 47 and the proposed school legislation is instructive:

Act 47

Proposed Legislation

Steering Department

Community and Economic Development

Education

Person Who Determines Status

Secretary of Community and Economic Development

Secretary of Education

Title of Official in Charge of Recovery

Coordinator

Chief Recovery Officer

Key Document

Recovery Plan

Financial Recovery Plan

There are some key differences as well: under Act 47, there are parties besides the state that have standing to make a case that a municipality has qualified for distress. In the proposed legislation, it appears only the Department of Education can make the case. There is no cap on the number of municipalities that can be in Act 47 at one time (right now there are over 20) whereas the legislation for schools says that "no more than nine" can be in financial recovery, or the more drastic receivership, at one time. While Act 47 spells out much of the criteria on what it means to be distressed, the State Board of Education is supposed to determine the criteria for "moderate" or "severe" distress. And what causes the cessation of distress/recovery? For both, it is the determination of the respective Secretary.

Duquesne Doubly Distressed

In the historical record, the month of June has not been a kind one to the City of Duquesne. In June of 1991, on the 20th to be exact, Duquesne was declared financially distressed. Five years ago, in June of 2007, the Board of Control that administers the school district decided to close the high school and send students to one of two nearby school districts. The Control Board has a contract with the Allegheny Intermediate Unit to perform much of the management functions for the District.

There seems to be little positive news for either the City or the District. The City recently sold its sewer system to a neighboring municipal authority because it did not want to face the cost of upgrades (estimated at $14 million). The City is levying a higher wage tax on its residents and non-residents who work there under Act 47. There is no indication the City will be exiting its status anytime soon.

There are 348 students in the District according to an annual report to the Legislature from last month, and the Commonwealth spent $10.8 million, close to 70% of the District’s revenues, in the 2010-11 school year. The rates of PSSA proficiency are poor and the District has failed to meet adequate yearly progress the last two years. Plans were announced to move seventh and eighth grade students to neighboring districts, but that would hinge on legislative changes.

One Last Chance for Harrisburg

Distress, and receivership, and bankruptcy, oh my! The continuing effect of Harrisburg’s Resource Recovery Facility-the incinerator-turning the capital city’s finances to smolders continues on as the Governor signed into law what is now known as Act 79, providing for fiscal emergencies in cities of the third class, of which Harrisburg is one.

According to the Governor’s press release, the act gives the City "a final opportunity to develop or agree to a financial recovery plan that is acceptable to the DCED secretary". The City has thirty days altogether, but the plan must be completed and sent to DCED within twenty days. That leaves the remaining ten for review and time to pass an ordinance codifying the plan locally.

If the Council opts not to take that opportunity, then the law triggers an emergency action plan that ensures public safety and other municipal services are carried out at the discretion of the DCED secretary.

Pending behind these two separate courses of action is a Chapter 9 municipal bankruptcy filing, an action that is supposed to get a hearing sometime in November depending on what happens with the provisions of Act 79. One Council member stated "We’re going to be bankrupt in five years anyway" and that "Under the state’s receivership plan…the city would likely have to sell water and sewer assets as well parking garages, but filing bankruptcy now could prevent such drastic measures." That’s taking a leap of faith in that the bankruptcy court could call for remedies that could be quite similar to what the state would attempt; it is unknown, but the Council members advocating for bankruptcy might be hoping to see something similar to what happened in Westfall Township where a $20 million debt was negotiated down to $6 million in bankruptcy court.

But what is being talked about is a $310 million debt and a rather rapid timeline to get something done. The previous Governor said there was "no Santa Claus" riding to rescue the City but then released money to help them make a bond payment. This time things look different, and no one is going to eat the outstanding tab.

Distressed? Just Moderately

Following the determination of the PA Public Employee Retirement Commission (PERC) that its New Years’ Eve plan of diverting anticipated tax revenues for the next three decades satisfied the dictates of Act 44, Pittsburgh’s pension plans are now classified at "moderately distressed" under that statute.

Under Act 44, pensions that have a funded ratio (assets/liabilities) of 90% or greater are not distressed; those 89% to 70%, minimally distressed; 69% to 50%, moderately distressed; and 49% or lower, severely distressed. Pittsburgh has left the lowest class and has raised its funded ratio to 62%, placing it squarely in the moderate category.

So who does Pittsburgh join in this grouping? It is much larger than the class it was in, with 162 other municipalities/authorities/associations. Larger PA cities include Johnstown (50% funded), Allentown (68%), and York (58%). Several plans from Allegheny County likewise show up, including those belonging to the municipalities of Crafton (65%), Harmar (69%), and West Mifflin (67%).

Long term sustainability of Pittsburgh’s plan counts on present and future officials living under the terms of the December 31st plan, getting City employment levels to that of better performing cities, and further meaningful pension reform from Harrisburg and at the local bargaining table.

Who Else is Severely Distressed?

Under Act 44 of 2009, which was referenced in yesterday’s blog as the major thrust of reform for local government pensions, local communities had their pension plans defined in terms of levels of distress depending upon how well (or how poorly) funded their plans are. A municipality whose plans (in aggregate) had a funded ratio of 90% or more are classified "not distressed"; 89-50% represents the middle ground and is split between "minimal" and "moderate" with the cutoff coming at 69%; the other end of the distress level, those at 49% or below, received the tag "severely distressed".

Pittsburgh, with a funded ratio of 34%, is firmly camped in the land of the "severely distressed" and Act 44 contains special provisions applying solely to it. In short, if it is determined the City’s funds are not at 50% funded or better the plans will be transferred to a state agency for administration and oversight.

The Public Employee Retirement Commission (PERC) has distress scores for roughly 1,440 municipalities at present (some still have not submitted valuations to PERC). Twenty-six, or 2% of all reported, are labeled "severely distressed". There are nineteen townships, three boroughs, two authorities, and two cities (Pittsburgh and Scranton). Twenty of the Commonwealth’s 67 counties are represented. The counties of Allegheny, Beaver, Lackawanna, and Susquehanna each have two local governments in the group.

Nine just fell under the 49% cutoff with funded ratios of 48 to 45%. The lowest funded ratio was 23%, a level shared by Braddock Hills (Allegheny) and Columbus Township (Warren). In total this group of twenty-six has $409 million in assets and $1,141 million in liabilities, resulting in an aggregate funded ratio of 36%. It is plain to see that Pittsburgh, with assets of $339 million and liabilities of $989 million, is the largest member of this group.